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10-02-2008, 09:46 PM #1
Retirement / Downpayment savings - What now? (long, long long)
This is a LONG post, beware.
For the past years of my life I have been foolish with money. Broke, broke, broke. I am making a good solid wage now (finally), after many years of being poor with crushing debt, in a very bad relationship and isolation from friends & family. I am 35 years old.
Things are much better now, I feel "wealthy" now and have control of my money. I used Dave Ramsey's methods to get out of debt and am in BS3 right now (saving a 6 month EF).
I know Dave Ramsey's next steps but am also open to listening to other ideas, thus the reason it's in general Money Managment and not under Dave Ramsey sub forum. But you are welcome to beat me over the head with DR gospel.
I put 6% into a 401K for a 3% company match. It's bleeding money now considering the market and is under $15K.
I have several questions:
Where do I put money into now? I have another 9% at the minium that I need to put someplace. or should I do more?
Next best step would be setting up a Roth? With who? What do I need to know? Who do I go to to get one set up?
I know I can put in $5K into a Roth before April 15th 2009 and have it count as a 2008 addition and then can put another $5K in for 2009 and successive years there after.
I am pretty much at a poistion that I could do that before April. And then just start making monthly deposits in April 2009 for the $5K in 2009.
However, I rent and I want to buy a house in next 1-3 years. It's still a fluid plan but don't have the money to buy now so just don't worry about that because there isn't much I can do about it right now anyways.
So really I should be on step 3.5 save downpayment for house/ land. I think I will need at least $30K for this area for 20% downpayment.
Each month I have $1600 left over starting in 2009. (FFEF of 6 mos will be done in Dec 08)
How is this for a plan?
Jan 09 - Mar 09-- Send all to 401K for 2008 additions
Apr 09 and on:
-- Send 600 month to Roth
-- Save 1000 month to Downpayment (put in cd's or high interest checking?)
Granted at this rate I will have down payment in 35 months, that's 3 years...
But if I didn't do the Roth I could have that downpayment in 2 years.
I have no idea. I'm scared of this next step and am thankful I don't have to make a decesion right now as I am filling FFEF, but I will need a plan soon.
Might be TTC in 2009 or 2010 - no paid maternity
Job security is always a little scary - not a firm as I would like but it is what it is
Might get married in 2009 - Possible partner has nothing. Has $7K in student loans, a reliable beater car and 51% ownership in a small business, but only value if he sold and then maybe $20K with sale, he and partner only take $1400 a month each from it.
I could get crazy with my budget and squeeze another $250 - $300 a month if I REALLY wanted too..
PS I am posting this on another forum, but use same screen name online, just want a variety of responses so you might see it else where.
Last edited by Denvergirlie; 10-02-2008 at 09:47 PM.
10-03-2008, 01:36 AM #2
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I don't really have much advice, but a question. Can you put extra to a 401K after Dec 31? Aren't they always through payroll? I know anything after that for us is always credited to the new calendar year. But then, admittedly, I don't know much about it.
10-03-2008, 07:06 AM #3
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You do know that DR says to complete the EF before you start investing for retirement. Still, all in all, if you have at least 3 months saved, you can probably move on to BS 4 and just work on slowly building up the EF to 6 months.
Regarding retirement amounts. DR recommends 15%. No more, no less, for BS4, UNTIL BS5 and 6 are complete.
How to allocate 15%, DR style:
1) 401k only up to the company match. Do you have to put in 6 to get 3? Or can you put in 3 to get 3? 6 to get 3 is a 50% instant gain, so that's good - but 3 to get 3 would be better. I know its bleeding money right now, but you're also getting MORE shares for your money, so that's a good thing.
2) Next, Roth IRA in good growth stock mutual funds, up to the maximum. If you can put in 10k this year and have 5k of it it apply to 2008, do it, but the 10k is still from THIS year, so if that makes you hit 15%, stop there, for this year.
3) If you're not at 15% yet, go back to the 401k and bring it up so total you hit 15%. If you even max out THERE, then...
4) Go back to mutual funds on your own, without the tax benefits, or other means of investments.
After the 15% is hit, and any kids educations are funded for the year, then anything else should go into savings to buy a house or to paying off the house early. You don't need to be beans and rice on this step - you can have some fun - but you wanna save up a lot, and your EF SHOULD NOT be used for buying a house - that'd be bad.
I don't think it would be prudent to rush buying a house. That's short term "I want it now"ism. Yes, a house will bring you a lot of joy IF purchased wisely. Wisely, however, would mean you've taken care of paying for your long term first, and that's retirement.
My $0.02, adjusted for inflation to $3.97
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10-03-2008, 07:40 AM #4
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My thoughts about house vs. retirement differ from Greebo's, even though I almost always agree with his advice. You have 2 things going for you with buying a house. One is that you are already contributing to your retirement, so it isn't as though you are doing nothing in that department. The other is that the housing market is bad and getting worse, which will keep prices low(er) for the next several years.
Were it my decision, I'd get that 6 month emergency fund (even more important when you are a home owner,) and then save up for a downpayment. Sure it is wise and prudent to save for retirement, but retirement isn't the be-all and end-all goal of life. If you want a home, go get you one. Just do it the right way.
As an addition, and maybe too personal- there's no way I'd get married and preggers when I don't even have a house to live in. That's going to suck up a lot of if not all of your extra money for a long time! Of course, if you put more value on this than the other things you want, my thoughts there aren't worth much.
Last edited by Squirt; 10-03-2008 at 07:43 AM.
10-03-2008, 09:35 AM #5
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The reason I agree with DR on getting money set to go into retirement first is because if you end up retired, with a paid for house, and nothing to live on...
... then what?
10-03-2008, 09:52 AM #6
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as somebody said to me... you can't eat equity.
10-03-2008, 09:53 AM #7
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That makes sense, Greebo. But isn't there a balance to be struck? How much into retirement before saving for a house? I think finding an answer to that would help the OP make her decision.
10-03-2008, 09:54 AM #8
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15% of gross income to retirement before moving onto buying a house.
10-03-2008, 10:45 AM #9
I have been doing the 6% for the max of a 3% match, they match half of my contributions up to 3%. I know it wasn't DR gospel, but I was still able to get rid of all my debt in 18 months so I let it stay.
I know that the stocks are on sale right now and really don't stress about it too much other than knowing what is going on at this time. I would not choose to put more funds in this account as when it's gains, it is stillnot that impressive.
The $5K I can put into a Roth would be just a few dollars under 15% of retirement savings I am too save. Techincally, I need to put an additional $5,143 in a year to make a full 15%.
The house - Honestly we want to be out on some land, but also I've been in this rental house for 7 years now so am starting to get tired of the stuff that has been falling down around us for the last few years. Rent is cheap for a house this size and in this neighborhood. My neighbors mortage is close to $3K a month, I pay $800 a month. Heck the 1 bedroom apartments across the street rent for $750 a month, so I pay $50 more and have a 3 story house with yard to garden in. I am just getting tired of the lack of any upkeep they do to the property but at this motnhly outgoing I can convince myself to stay. We can hold off on the buying of a house and just save more to be able to move to the country instead of stopping over in another house for a few years. Like I said this is a very fluid plan still, but no matter what will need a downpayment eventually.
I am also a fan of "Your money or your life" so have trimmed a lot of fat in the budget to be able to live way below my means.
I also do lots of odd jobs and sell on eBay so have other irregular income that I can develop if needed. And as I mentioned before I can get crazy with my budget and squeeze another $250 - $300 a month from my budget.
If I choose to do that and didn't increase retirement, I could have that $30K in another 18 months.
Finally, for the past few years I have received a 4-5% raise each February, so if that occurs again this year, that would be another $160 take home a month.
I guess I'm really trying to figure out what the most pressing goals are at this time..... of course I have tinfoil hat tendancies that also keep me worried about TEOTWAWKI / WTSHTF and that all that retirement saving might be for naught and I am left with the clothes on my back and stuck in the middle of a city going to pot.
Last edited by Denvergirlie; 10-03-2008 at 10:50 AM.
10-03-2008, 10:56 AM #10
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You said you've got 1,600 a month left over, right?
That's 19,200 a year, if its consistent, so if you put 5200 of that into retirement, you've still got 14k a year to save for a good down-payment.
You need a 20% down, cause otherwise you get hit with PMI, but if we allow $1,166 per month for your mortgage including escrow, that means about 900/month for mortgage alone, which working backwards puts you into about a $100,000 mortgage and about $20,000 down, so a grand total of a $120,000 house. If you save 14k per year for 2 years, that's 28k saved, which puts you in a $130,000 house with a 100k mortgage. 3 years, and you're in a $145,000 house with a $100k mortgage, and a higher income to boot.
I know you're tired of renting, but I think you're still better off waiting a LITTLE while longer...taking your time, saving your money, and being ready when the right house comes along at the right time, and this isn't quite it yet.
10-03-2008, 01:23 PM #11
also I am thinking that the down payment is a one time expense, after which time you can apply the bulk of that $1K extra per month (after adding to retirement and accounting for increased monthly housing cost), you can snowball it onto your mortgage and pay that off quickly too. Yay!
p.s. She said she'd need 30K for a 20% down which means the price of the home is closer to $150K, not $100K.
Last edited by Mochashello; 10-03-2008 at 01:24 PM. Reason: added p.s.
10-03-2008, 01:29 PM #12
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I saw that but I went with the hypothetical price of 100k and a 20% 20k downpayment.
10-03-2008, 02:09 PM #13
10-03-2008, 02:11 PM #14
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Regardless, in just about ANY scenario, I think its clear that long term, buying is a better deal than renting.
10-03-2008, 02:39 PM #15
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